By Richard Rubin

WASHINGTON -- Republicans' tax-and-spending megabill would increase budget deficits by $2.8 trillion through 2034 after factoring in the projected economic growth the bill would create, leading to more red ink than previously estimated, according to the Congressional Budget Office.

The CBO's analysis of the House-passed bill undercuts one of Republicans' main arguments for the legislation. The bill's authors have argued that critics are ignoring the economic boom that the tax cuts and President Trump's other policies would create. That larger, faster-growing economy, they contend, would throw off enough extra tax revenue to cover the $2.4 trillion gap between the bill's tax cuts and spending cuts.

The new CBO estimate says the opposite would happen. The bill would, effectively, un-pay for itself.

According to the CBO's projections, the economy would grow somewhat faster than if Congress did nothing and let tax cuts expire. But when it comes to the federal government's bottom line, higher interest rates would overwhelm the extra revenue coming from that growth.

CBO's analysis aligns with the forecasts of nongovernment groups across the political spectrum. The bill's tax cuts would accelerate economic growth in the short term, but higher budget deficits and interest rates would then wash away those benefits. When additional interest costs are included, the net effect would push federal debt $3.4 trillion higher than projected by 2034.

The bill is a combination of many of President Trump's priorities, all rolled into a single measure that lawmakers are trying to get to his desk by July 4. It would extend expiring tax cuts, add new tax breaks, reduce projected Medicaid and nutrition-assistance spending and increase spending on border security and national defense.

Tuesday's report starts with the conventional analysis that shows the bill adding to budget deficits by $2.4 trillion through 2034, on top of the $21 trillion that the country would incur if Congress does nothing and the 2017 tax cuts expire as scheduled at the end of this year.

In the report, CBO then tried to assess how much additional economic growth the bill would create. In the short term, that comes from individuals having more money and greater willingness to work because of the tax cuts. In the long run, that growth comes from business investments that boost productivity.

In all, the bill would increase real gross domestic product by 0.5% over the decade. The increase in the GDP growth rate would be about 0.09 percentage point in the first few years and 0.04 percentage point for the whole period. That is far short of the jump to 2.6% annual growth from 1.8% that House Republicans say is likely.

The additional budget deficits would counteract that growth, crowding out private investment and driving up interest rates by an average of 14 basis points above CBO's forecasts. The bill would increase inflation, leading the Federal Reserve to slow the path of interest-rate cuts, according to CBO. And the bill's funding for immigration enforcement and detention would reduce the workforce.

"Today's CBO score will disappoint every Republican who hoped tax breaks for billionaires would magically pay for themselves," said Rep. Brendan Boyle (D., Pa.), the top Democrat on the House Budget Committee.

The CBO analysis looks only at the changes proposed in the House bill. That means it doesn't include the Senate's counterproposal, the administration's deregulatory efforts or Trump's tariffs. Republicans have been steadily trying to discredit CBO over the past few weeks.

Senate Republicans this week proposed some changes aimed in part at bolstering the bill's long-run growth potential.

They called for shrinking the House's short-term tax cuts, notably setting the child tax credit at $2,200 instead of $2,500 and including more limits on Trump's "no tax on tips" and "no tax on overtime" policies.

But they also would make permanent the ability for businesses to take immediate deductions for certain research expenses and equipment purchases. Economists say those changes are likely to spur more investment and growth than the House's temporary versions of the same policies.

CBO hasn't yet analyzed the Senate proposal.

Write to Richard Rubin at richard.rubin@wsj.com

(END) Dow Jones Newswires

June 17, 2025 14:47 ET (18:47 GMT)

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